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Chapter 6 ACCT 3337 Fall 2011 first part

Chapter 6 ACCT 3337 Fall 2011 first part - Chapter 6...

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Chapter 6 Process Costing
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Difference Between Job-Order and Process  Costing Systems Job-Order Costing Each unique product or batch is considered a job Manufacturing costs are traced to specific jobs Process Costing Used when homogenous items are produced Total costs are divided by total units produced
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Job-Order and Process Costing Examples Companies who use job order: Cray Computer Corporation, Boeing Company, Chris Craft  Boat Company, construction, Legal Services, or Repair  Services tailored to client. Companies who use process costing: Pepsico Incorporated, Starbucks Corporation, Revlon  Consumer Products Corporation, Goodyear Tire and Rubber  Company
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Product and Cost Flows in Process Costing Firms Product Flows Through Processes A product typically passes through multiple departments
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Job-Order vs. Process Costing Job Order Costing Process Costing Ac c um ulate  c o s t to   uniq ue  jo bs Ac c um ulate  c o s t by  pro c e s s A jo b c o s t s he e t fo r e ac h  jo b (s ubs idiary le dg e r in  WIP) A WIP ac c o unt fo r e ac h  pro c e s s The re  are  us ually le s s  pro c e s s e s  than jo bs , and the re  is   no  ne e d to  trac e  m ate rial to  m any jo bs  but jus t to  fe w  pro c e s s e s . Wo rke rs  us ually wo rk jus t o n o ne  pro c e s s  s o  no  ne e d fo r  tim e  tic ke ts  as  we ll. Many c o m panie s  tre at labo r and o ve rhe ad to g e the r as   c o nve rs io n c o s ts . 
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C o s ts  flo w in a pro c e s s  s ys te m The units flow from process to process, when each process has  its own WIP inventory.  Each process adds materials and conversion costs, and then  transfers-out the units. What are the journal entries for the above flow?
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Costs and unit flow in a process system Each process needs to account for both the units that  go in and out and the costs that come in and out. Therefore we make for each process: A reconciliation of units A reconciliation of costs 
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Reconciliation of Units Example: Process 1 (cleaning) in a milk factory (in gallons) Units to account for Units accounted for
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Reconciliation of units: Example Example 1: WIP inventory on 10/1 8,000 tons Units started in October ? Units completed in October 18,000 tons WIP inventory 10/31 1,000 tons
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Reconciliation of Costs Example: Process 1 (cleaning) in a milk factory (in gallons) Costs to account for Costs accounted for
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Reconciliation of costs: Example Example for a specific process: WIP inventory cost on 11/1 $7,200 Material used during November $243,480 Conversion costs during November $91,120 Cost of units completed in November $336,000 WIP inventory cost 11/30 ?
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